‘S’ is for Sickness Absence – Part 2…Pay during sickness absence

There are two separate elements of pay that apply for periods of sickness absence:

1. Provisions for sick pay in contracts of employment or in the company’s employee handbook/procedure documents; and
2. Statutory sick pay provisions.

Contractual sick pay

It is common for employers to have a sick pay policy which provides for payments beyond the minimum statutory entitlement to sick pay.  Such policies will often be discretionary and will generally state that the employer will pay employees their full pay for a specified period, following which their employment will either expire or be reduced by a certain amount.  Some policies specify a minimum period of payment for sickness absence and state that, following that period, any further payments will be at the sole discretion of the employer.  Note that there could also be an “implied contractual right” to sickness pay in circumstanes where an employer might have an unwritten policy of continuing to pay employees when off sick, which could give rise to a contractual right.

Although an employer may seem to have absolute discretion in respect of payments under its sickness policy and may, therefore, terminate such payments as and when it chooses, there are risks involved.  Employers should consider whether it might be suggested that their decision to terminate the discretionary payment is an act of discrimination and therefore unlawful (disability discrimination, for example).  Care should be taken to ensure that the employer can either avoid or defend any such allegations.  Putting in place a system for objectively deciding whether or not to extend or cease discretionary sick pay and applying it in each case, with a clear paper trail recording the reasons for the final decision would be a good way of tackling such allegations.  Examples of factors that an employer will generally take into account in reaching a decision on this point include the cost of providing the full sick pay, the employer’s financial position and resources and the interests of the  employees.

In circumstances where there is a written policy and an employer decides to cease making discretionary payments, it is advisable for the employer to give the employee concerned at least one month’s notice of this decision.  Also, it may be better for employers to consider gradually reducing the amounts paid, rather than ceasing such payments in a short period of time. 

It is generally thought that it could be deemed to be unfair to dismiss an employee before they have exhausted their right to contractual sick pay.  This is on the assumption that it is possible to imply a term into the employees’ contract of employment stating that they are entitled to receive the full benefit of the employer’s sick pay scheme before being dismissed by reason of their illness.  However, this will form a factor a tribunal would take into account in analysing whether or not a dismissal is fair, rather than leading to an automatic finding of unfair dismissal.

Statutory sick pay

The statutory sick pay scheme is set out in the Social Security Contributions and Benefits Act 1992 (as amended).  Under that scheme, employees who have been absent from work for four or more consecutive days (including weekends) are entitled to receive a minimum weekly payment (currently £72.55) for up to 28 weeks within a three-year period.  After 28 weeks, any entitlement to sickness benefit is paid to the employees directly from the Department for Work and Pensions.  No statutory sick pay is payable for the first three days on which an employee’s absence due to sickness, unless their contract expressly provides for such payments.  Statutory sick pay is taxable and subject to national insurance contributions.  It is normally paid to employees by the employer who then reclaims it from Her Majesty’s Revenue and Customs (HMRC).

To receive statutory sick pay, employees must:

• Notify their employer of their absence;
• Have four or more consecutive days of sickness during which they are too ill to be capable of working; and
• Submit evidence of that incapacity as agreed with their employer (a doctor’s certificate or self-certification for, for example).  HMRC states that employer’s are entitled to ask for reasonable evidence of incapacity (such as a doctor’s certificate) after the first seven days of absence.  However, they cannot request a doctor’s certificate for the first seven days of sickness absence or for a period of absence that is less than seven days.